Staples: Katz Group and city council must avoid miserable failure on arena

But a combination of user fees and a booming downtown can solve the problem

An artist’s conception of Edmonton’s proposed downtown arena. If you factor in the consumer price index, the controversial $485-million estimated cost of a new arena is actually $450 million in 2007 dollars.

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EDMONTON - The Katz Group and Edmonton city council will fail miserably if they can’t come up with a deal to build a new downtown arena.

But there’s still hope. To get the deal right, both sides in the failing negotiation must simply do what they are supposed to do.

The politicians need to live up to their lofty rhetoric about the need to stop building cheap and ugly in Edmonton. Better not to build at all than to build another eyesore arena.

For example, I doubt a downtown booster like Coun. Ben Henderson would like it if the new arena’s loading docks were plunked on the north side of the building. Loading docks are so ugly they are sometimes referred to by architects as the “anus” of a building. If the arena’s loading docks faced 105th Avenue, that would be like mooning the neighbourhood north of the arena.

That’s not going to happen, though, because the Katz Group purchased more land to open up more space on the arena’s east side, where the docks will now go. The docks will also be shrouded from public view by the arena’s commercial area.

It’s an excellent move, but such improvements to the design cost many millions.

It was a good sign, then, on Wednesday when Mayor Stephen Mandel made it clear he would support $25 million more going into the arena so that it can be built right, at a new cost of $475 million. The Katz Group would pay half of the increase, Mandel said, basing his comment on the Katz Group’s letter to council, where they have offered to pay a “fair portion” of costs over $450 million.

It’s right that the Katz Group is offering to pay more. On this project, they need to do what entrepreneurs do, which is to take a calculated risk, then work their butts off to make the project go so they might make oodles of cash down the road.

Much less encouraging is what I’ve learned about a recent Katz Group demand in negotiations, that for the term of the 35-year lease the city pay $6 million per year toward the operating and maintenance costs of the arena.

The ask is far too high, though it’s understandable that the Katz Group is anxious. Oilers owner Daryl Katz will be paying many millions more each year in the new arena compared to his current deal at Rexall Place.

The Katz Group will not pay $1 per year in rent, as it does now, but will pay roughly $5.5 million per year toward the mortgage. It won’t pocket $4.5 million a year in ticket tax, as it does now, but will instead see roughly $7 million per year go to the mortgage. It will not pay $1.2 million for operations, as it does now, but will pay more than $10 million per year in operating and maintenance.

That’s a huge bill, but there’s a reasonable solution at hand on the outstanding funding issues, one that has been kicked around in arena discussions.

Step one is for the ticket tax to pay for much of the extra costs to build this arena right.

Now, the Katz Group is no friend of the ticket tax. If a $10 tax is charged on a $100 ticket, that’s $10 the Katz Group can’t charge and pocket itself. Increases in ticket tax eat into their profits.

But so be it. Users should pay much of the cost of the new arena.

Step two, though, would see new property taxes generated in the arena district eventually take over from most or all of the ticket tax.

These new taxes are going to be collected in a fund known as the Community Revitalization Levy (CRL).

City politicians are worried the arena district and our downtown might not boom, so they’ve only slated an extremely conservative $45 million from the CRL pot toward paying for the arena.

But what if the arena district does boom? What if the investment of the Katz Group and the city pays off and there’s more than a billion in new development around the arena?

At some point, it’s fair for these new property taxes to pay more for the arena, to take over from the ticket tax.

Yes, the Katz Group will benefit at that point, but this will only happen if it helps create an arena district that is truly thriving, greatly adding to our downtown life. It would be a decent bargain for Edmontonians.

An artist’s conception of Edmonton’s proposed downtown arena. If you factor in the consumer price index, the controversial $485-million estimated cost of a new arena is actually $450 million in 2007 dollars.

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